Five Things to Know About Value-Based Reimbursement

By StudiomacaFebruary 20, 2018

As the interest in value-based reimbursement (VBR) models grow, the effort to measure their industry penetration, use and impact does, too. Five health care organizations recently released their own VBR progress reports.

For hospitals, health systems and physician practices, the different reports offer a reality check on VBR models and useful guidance on how to respond to the continued growth in reimbursement models that pay providers based on the clinical and cost outcomes of the care they give to patients.

Below are the major takeaways for providers from each of the five industry reports:

1. Percentage of performance-based payments to providers nears 60%

The majority of payments to providers are now linked to performance, according to an 18-page report from the (LAN), a public-private partnership that advocates for and tracks VBR adoption. The report, APM Measurement: Progress of Alternative Payment Models, is based on data from 80 participating public and private health plans and health plan sponsors. LAN tracks payments to providers in four APM categories:

Traditional fee-for-service or other legacy models not linked to quality or value

Fee-for-service linked to quality and value, such as pay-for-performance or care coordination

APMs built on fee-for-service architecture

Population-based payment

APM Categories 3 and 4 include VBR models, such as shared savings, shared risk, bundled payments and population-based payments. The report said the percentage of payments to providers in Categories 2, 3 and 4 rose to 57 percent in 2016 from 38 percent in 2015. The percentage of payments to providers in Category 1 dropped to 43 percent from 62 percent. “We are encouraged by these results and the great progress being made towards APM adoption,” LAN said in a press release.

Primary-care medical practices are making the transition to value-based reimbursement, based on a two-page summary of the 2017 Value-Based Payment Study from the (AAFP). The AAFP’s study is based on a survey of 386 of its members. Forty-seven percent of the respondents said they were actively pursuing VBR opportunities today, compared with 44 percent who completed a similar survey by the AAFP in 2015. Additionally:

60 percent said they were “extremely” or “somewhat” familiar with the concept of VBR (compared with 57 percent in 2015)

21 percent said they were developing VBR capabilities but not fully pursuing VBR contracts until they’re proven to be effective (compared with 23 percent in 2015)

19 percent said they were holding off on making any VBR changes and instead are focusing on optimizing their fee-for-service payment (compared with 22 percent in 2015)

The respondents said the biggest barriers to VBR adoption in terms of practice sustainability were the lack of staff time, the required investment in health information technology, the unpredictability of revenue stream and the ability to understand the complexity of financial risk. “Our members are making changes at the practice level and making investments to prepare for the transition to value-based models that will support better care. However, major barriers still exist that are stifling progress,” the AAFP said.

3. New skill sets and capabilities are needed to effectively manage risk under VBR models

As the risk rises in VBR models, so, too, does the need for hospitals to acquire the skills needed to manage that risk, according to a 12-page report from the (AHA). The report, Hospitals and Health Systems Prepare for a Value-Driven Future, is based on detailed interviews by the AHA with C-suite executives at seven prominent hospitals and health systems. The executives identified 41 distinct skills and capabilities in five disciplines that hospitals and health systems need to succeed under various VBR models:

Contracting and provider network management

Clinical and care management

Analytics

Financial management

Governance and organization

The report then assigned the 41 skills and capabilities in the five disciplines to each of four VBR arrangements, ranging from low financial risk to high financial risk:

Pay-for-performance

Bundled payments and upside shared savings

Upside and downside shared savings

Global budget capitation

For example, hospitals and health systems with low-risk pay-for-performance contracts should be able to develop and engage patients in quality improvement and disease management programs as part of their clinical and care management skill set. Meanwhile, hospitals and health systems with high-risk global budget capitation contracts should excel at actuarial analytics and predictive modeling as part of their analytics capabilities. “The breadth of competencies necessary to succeed at [VBR] increases as a hospital or health system moves up the risk spectrum,” the AHA said.

4. Shared-risk VBR models will grow faster than other VBR arrangements by 2019

Specialty practices are preparing to take on shared-risk VBR arrangements, based on a 21-page report from the (AMGA). The report, Taking Risk, 3.0: Medical Groups Are Moving to Risk…Is Anyone Else? is based on an AMGA survey of 74 of its members. Thirty-five of the respondents, or 44 percent of the sample, were multispecialty medical group practices. The respondents said 71 percent of their group’s revenue from commercial health insurers today comes from fee-for-service-based reimbursement contracts. By 2019 that percentage will drop to 63 percent, they projected. Conversely, the percentage of revenue from VBR arrangements with commercial health insurers will rise to 37 percent by 2019 from 29 percent today. The revenue from VBR contracts will be apportioned among the following models by 2019:

15 percent from shared savings (no change from today)

10 percent from shared risk (up from 6 percent today)

5 percent from full global capitation (up from 4 percent today)

5 percent from partial global capitation (up from 4 percent today)

2 percent from bundled payments (up from 1 percent today)

The fastest-growing model is shared risk, also referred to as downside risk. That means providers share savings with health plans when they meet or exceed their clinical and cost outcome targets. But it also means providers surrender revenue when they miss their targets. Sixty percent of the respondents said they would be in a position to accept downside risk contracts by 2019.

Physician practice participation in popular value-based care models is increasing, according to a 22-page policy brief from the (AMA). The brief, Payment and Delivery in 2016: The Prevalence of Medical Homes, Accountable Care Organizations and Payment Methods Reported by Physicians, is based on an AMA survey of about 3,500 physicians. The AMA conducted a similar survey in 2014. Across all physician practice types, physician participation in value-based care delivery models generally was higher in 2016 compared with 2014:

31.8 percent of physicians participated in a Medicare accountable care organization (ACO) in 2016 compared with 28.6 percent in 2014

31.7 percent of physicians participated in a commercial ACO in 2016 (no 2014 comparison is available)

25.7 percent of physicians participated in a medical home in 2016 compared with 23.7 percent in 2014

20.9 percent of physicians participated in a Medicaid ACO in 2016 (no 2014 comparison is available)

However, participation varied significantly by practice type. The most likely to participate in one of the four value-based care models was a multispecialty group practice. The least likely was a solo physician practice. Single specialty practices were in the middle. For example, 41.6 percent of multispecialty group practice respondents said they were part of a Medicare ACO in 2016, compared with 27.6 percent for single specialty practices and 19.5 percent for solo practices.

For health care providers sifting through the details of various VBR arrangements, the five reports offer important guidance on where VBR models are going and what it will take to meet them at their desired clinical and cost destinations.

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